F3 - Equity Method

Question 1

How is the year-end “investment in investee” reported on the balance sheet calculated under the equity method?

Answer 1

Beginning investment in investee

+ Investor’s share of investee earnings

• Investor’s share of investee dividends

- Amortization of FV differences

Ending investment in investee

Question 2

How is an investor’s equity method investment reported on the income statement?

Answer 2

Investor’s share of investee earnings

- Amortization of FV differences

Equity in earnings / investee income

Question 3

How are joint ventures accounted for under IFRS and U.S. GAAP?

Answer 3

Joint ventures are accounted for using the equity method under both U.S. GAAP and IFRS.

Question 4

In a step-by-step acquisition, what is the accounting treatment when significant influence is acquired?

Answer 4

• Going from the cost method to the equity method is handled like a change in accounting principle - retroactively.
• Go back retroactively with the equity method but not with the new ownership percentage.
• Prior period financial statements are restated.